The original Seven Essays, in a cool, new outfit ...
Call 412-567-OXEN [6936] Fax 412-567-6936 Email - [email protected]

All posts in General Questions

I seem to be stumbling with a portion of my work, could you please lend a hand….

Prepare a paper in which you describe future market conditions that your selected company/industry will face. Explain you conclusions. Address the following topics in your paper:

The two portions that I need help with are;

Cost Structure (150 words)

Price Elasticity of Demand (150 word)

If there is citation material, please provide citation information both in text and as if it was for the reference page….

The company is Macy’s.

Thank you for your help…..

Mike Lane will have $5 million to invest in five year U.S. Treasury bonds three months from now. Lane believes interest rates will fall during the next three months and wants to take advantage of prevailing interest rate by hedging against a decline in interest rates. Lane has sufficient

a.Describe what action lane should take using five-year U.S. Treasury note futures contracts to protect against declining interest rates.
Assume three months have gone by and, despite Lane’s expectations, five-year cash and forward market interest rates have increased by 100 basis points compared with the five year forward market interest rates of three months ago.

b.Discuss the effect of higher interest rates on the value of the futures position that Lane entered in to in a part a.

c.Discuss how the return from Lane’s hedged position differs from the return he could now earn if he had not hedged in part a.

1.Luke believes that he can invest $5,000 per year for his retirement in 30 years. How much will he have available for retirement if he can earn 8% on his investment?

A. 566,400
B. 681,550
C. 150,000
D. 162,000

2. An issue of common stock has just paid a dividend of $4.00. Its growth rate is equal to 8%. If the required rate of return is 13%, What is its current price?
A. $19.04
B. $80
C. $86.40
D. none of these

3. Mike Carlson will receive $10,000 a year from the end of the third year to the end of the 12th year (10 payments). The discount rate is 10%. The present value today of this deferred annuity is:

A. $61,450
B. $42,185
C. $46,149
D. $50,757

4.The growth rate for the firm’s common stock is 7%. The firm’s preferred stock is paying an annual dividend of $5. What is the preferred stock price if the required rate of return is 8%?

A. $5
B. $62.50
C. $500
D. none of these

5.A ten-year bond, with a par value $ of $ 1,000, pays 10% annually. If similar bonds are currently yielding 6% annually, what is the market value of the bond? Use semi-annual analysis.
A. $1,000
B. $1,127.50
C. $1297.85
D. $2,549.85

6.An issue of common stock is expected to pay a dividend of $4.80 at the end of the year. Its growth rate is equal to 8%. If the required rate of return is 13%, What is its current price?

A. $103.68
B. $36.92
C. $96.00
D. none of these

Dairy Corp. has a $10 million bond obligation outstanding which it is considering refunding. The bonds were issued at 10% and the interest rates on similar bonds have declined to 8%. The bonds have five years of their 20 year maturity remaining. The new bond will have a 5-year maturity. Dairy will pay a call premium of 5% and will incur new underwriting costs of $400,00 immediately. There is no underwriting cost consideration on the old bond. The company is in a 40% tax bracket. To analyze the refunding decision, use a 6% discount rate.

Use this information to answer the questions below.

7.What is the present value of the cash outflows related to the call premium and underwriting cost?

8.Round to the nearest dollar and omit commas and dollar signs (example: $25,000 would be entered as 25,000.


9.What is the present value of the cash inflows related to the refunding decision?
Round to the nearest dollar and omit commas and dollar signs(example: $25,000 would be entered as 25000


10.Should Dairy Corp. refund the old bond issue and replace it with the new issue?
A) yes
C) There is not enough information to make a decision.

11.Investors consider which of the following to be the most important measure of bond returns?
A) coupon rate
B) yield to maturity
C) current yield
D) none of these

12. Buchanan Corp. is refunding $12 million worth of 10% debt. The new bonds will be issued for 8%. The corporation’s tax rate is 35%. The call premium is 9%. What is the net cost of the call premium?
A) $390,000
D) $702,000

13.A bond with a coupon rate of 7.5% maturing in 10 years at a value of $1,000 and current market price of $776 will have a current yield of

14. A bond with a coupon rate of 7.2%, maturing in 10 years at a value of $1,000 and a current market price of $ 800, will have a yield to maturity (using the approximation formula)of
A) between 10% and 10.5%
B) between 10.5% and 11%
C) between 11% and 11.5%
D) between 11.5% and 12%

15.Market Enterprises would like to issue bonds and needs to determine the approximate rate they would need to pay investors. A firm with similar risk recently issued bonds with the following current features: a 7% coupon rate, 20 years until maturity, and current price of # 1,150. At what rate would Market Enterprises expect to issue their bonds, assuming annual interest payments?
A) 5.7%
B) 5.9%

16.The dividend valuation model stresses the
A) importance of earnings per share
B) importance of dividends and legal rules for maximum payment.
C) relationship of dividends to market price
D) relationship of dividends to earnings per share

Bob’s Baked Goods Company reported the following income statement for 2007:
Sales: $1,800,000
Variable Costs: $600,000
Fixed Operating Costs: $500,000
EBIT: $700,000
Interest Expenses: $100,000
EBT: $600,000
Taxes (40%): 240,000
Net Income: $360,000
Earnings Per Share: $3.60

If Bob’s sales next year increase by 30%, what will Bob’s earnings per share be?

a) $5.76
b) $4.45
c) $3.60
d) $4.68
e) $2.75

1. Lenders must be concerned that borrowers may do risky unauthorized things with the funds they are lent. This is the problem of:

A) moral hazard
B) asymmetric information
C) nondivisibility
D) adverse selection

2. Economies of scale in information production are enjoyed by:

A) small borrowers
B) small lenders
C) large borrowers
D) large lenders

Which would you prefer?

Categories: General Questions
Comments Off

Which would you prefer?

a) An investment paying interest of 12% compounded annually.

b) An investment paying interest of 11.7% compounded semiannually.

c) An investment paying 11.5% compounded continuously.

Work out the value of each of these investment after 1,5, and 20 years.

2.You own a pipeline which will generate a $2 million cash return over the coming year. The pipeline’s operating costs are negligible, and it is expected to last for a very long time. Unfortunately, the volume of oil shipped is declining, and cash flows are expected to decline by 4% per year. The discount rate is 10%.

a. What is the PV of the pipeline’s cash flows if its cash flows are assumed to last forever?

b. What is the PV of the cash flows if the pipelines is scrapped after 20 years?

3. A 10-year German government bond (bund) has a face value of 100 and an annual coupon rate of 5%. Assume that the interest rate (in euros) is equal to 6% per year. What is the bond’s PV?

4. Look again at problem 3. Suppose that the German bund paid interest semiannually like a U.S. bond. ( The bond would pay .025×100= 2.5 every six months). What’s the PV in this case?